How to use BCG Matrix for a company: A practical guide

The BCG matrix, also known as the Boston matrix or the growth share matrix, is a strategic planning tool that helps companies analyze their product portfolio and allocate resources accordingly. The creation of the BCG matrix was a collaborative effort by the employees of the Boston Consulting Group (BCG), a leading management consulting company. Alan Zakon, who would later become the CEO of BCG, first sketched the matrix and then refined it together with his colleagues. The essay “The Product Portfolio” by Bruce Henderson, the founder of BCG, made the concept widely known in 1970.

What are the four categories of the BCG Matrix?

BCG matrix is based on the idea that products can be classified into four categories based on their relative market share and market growth rate, which are important factors in strategic marketing models.

The four categories of the BCG matrix are:

Stars: Products with high market share and high growth rate. These are the products that generate the most revenue and profit for the company, but also require significant investment to maintain their competitive advantage and sustain their growth. Stars are the future cash cows of the company.

Cash cows: Products with high market share and low growth rate. These are the products that have a stable and dominant position in a mature market, and generate a steady stream of cash flow for the company. Cash cows require little investment and can be used to fund other products in the portfolio.

Question marks: Products with low market share and high growth rate. These are the products that have a potential to become stars, but also face a lot of uncertainty and risk. Question marks require a lot of investment to increase their market share and compete with the market leaders, but they may also fail to do so and become dogs.

Dogs: Products with low market share and low growth rate. These are the products that have a weak position in a declining market, and generate little or no profit for the company. Dogs are usually a drain on resources and should be divested or discontinued.

How to plot products on the BCG Matrix?

To plot products on the The BCG matrix, also known as the Boston matrix, you need to follow these steps:

• Identify the products or business units that you want to analyze. You can choose to focus on a specific product category, a geographic region, a customer segment, or any other relevant dimension of your business.
• Collect data on the market share and growth rate of each product or business unit. You can use various sources of information, such as sales reports, industry reports, customer surveys, competitor analysis, etc. You can also use benchmarks or averages to compare your products with others in the same market.
• Plot each product or business unit on a four-quadrant matrix, using market share as the horizontal axis and growth rate as the vertical axis. You can use different sizes or colors of circles to represent different aspects of your products, such as revenue, profit margin, customer satisfaction, etc.

How to use BCG Matrix for strategy and resource allocation?

The CG matrix, also known as the growth share matrix, can help you make strategic decisions about which products to invest in, maintain, harvest, or divest, based on their relative performance and potential.

Here are some general guidelines:

Stars: Invest in stars to maintain or increase their market share and growth rate. Stars are your most valuable products and should receive the highest priority and attention. You can use different strategies to support your stars such as product innovation, marketing differentiation, distribution expansion, pricing optimization, etc. This is also known as BCG matrix star strategy.

Cash cows: Maintain cash cows to maximize their cash flow and profitability. Cash cows are your most stable products and should receive moderate attention and investment. You can use different strategies to protect your cash cows such as cost reduction, customer loyalty programs, quality improvement, pricing stability, etc.

Question marks: Decide whether to invest in or divest question marks based on their potential and feasibility. Question marks are your most risky products and should receive careful analysis and evaluation. You can use different criteria to assess your question marks such as market attractiveness, competitive advantage, strategic fit, financial return, etc. Question marks represent a growth opportunity for the company, but also a challenge.

Dogs: Divest or discontinue dogs to free up resources and focus on more profitable products. Dogs are your least valuable products and should receive minimal attention and investment. You can use different methods to exit your dogs such as selling them off, licensing them out, shutting them down, etc.

How to calculate market share and growth rate?

Market share and growth rate are two important metrics that can help you evaluate the performance and potential of your business or product in each market. Market share is the percentage of the total sales or revenue that your business generates in a specific market, compared to your competitors. Growth rate is the percentage change in the size or value of a variable over a certain period of time such as a year, a quarter, or a month.

To calculate market share, you need to know your business’s total sales or revenue for a given period and the total sales or revenue of your industry for the same period. Then, you can use this formula:

For example, if your business sold $10,000 worth of products in a month, and the total industry sales for that month were $100,000, then your market share would be:

Market share = ($10,000 / $100,000) x 100 = 10%

This means that your business captured 10% of the market in that month.

To calculate growth rate, you need to know the value of a variable at the beginning and at the end of a period. Then, you can use this formula:

For example, if your business had $5,000 in sales in January and $6,000 in sales in February, then your monthly growth rate would be:

Growth rate = (($6,000 - $5,000) / $5,000) x 100 = 20%

This means that your business grew by 20% from January to February.

You can also calculate the annual growth rate by using the compound annual growth rate (CAGR) formula. This formula takes into account the compounding effect of growth over multiple periods. The CAGR formula is:

For example, if your business had $5,000 in sales in January 2022 and $7,500 in sales in January 2023, then your annual growth rate would be:

CAGR = (($7,500 / $5,000) ^ (1 / 1)) - 1 CAGR = (1.5 ^ 1) - 1 = 50%

This means that your business grew by 50% from January 2022 to January 2023.

Source: https://www.starlightanalytics.com/article/market-growth

How to review and update BCG Matrix?

You should review and update your BCG matrix regularly to reflect changes in your product portfolio and market conditions. You should monitor the performance and potential of each product or business unit over time, and adjust your strategy planning and resource allocation accordingly.

Reviewing and updating your BCG matrix can help you keep track of your progress and results, and identify new opportunities and challenges. You can use some questions to guide your review and update, such as:

• How have the market share and growth rate of each product or business unit changed since the last time you plotted them on the BCG matrix? What are the reasons for these changes?
• How have the strategies and resource allocation for each product or business unit worked out? What are the outcomes and impacts of these actions?
• How have the market conditions and competitive landscape changed since the last time you plotted them on the BCG matrix? What are the implications for your products or business units?
• How have your goals and objectives changed since the last time you plotted them on the BCG matrix? What are the new priorities and expectations for your products or business units?

Real life BCG Matrix examples of popular brands: Coca-Cola and Apple

To illustrate how the BCG matrix can be applied in practice, let’s look at some examples of popular brands and their products or services.

Example 1: Coca-Cola

Coca-Cola is a world-leading ready-to-drink beverage company that has more than 500 soft drink brands, from Fuse Tea to Oasis to Lilt to Powerade. But none of them is anywhere close to the coke brand in terms of awareness, revenue, and profit.

• One of the star products of Coca-Cola is Coke Zero, a sugar-free version of the classic coke that has a high growth rate and a high relative market share. It is popular among health-conscious consumers who want to enjoy the taste of coke without the calories. Coke Zero requires continuous investment to maintain its position and fend off competitors.
• Another star product of Coca-Cola is Sprite, a clear lemon-lime flavored soft drink that has a high growth rate and a high relative market share. It is widely consumed around the world and has a strong brand image. Sprite also requires continuous investment to sustain its growth and market share.
• One of the cash cows of Coca-Cola is Diet Coke, a low-calorie version of the classic coke that has a low growth rate but a high relative market share. It is one of the most successful products of Coca-Cola that has a loyal customer base and generates a steady stream of revenue and profit. Diet Coke does not need much investment to maintain its market share and can be used to fund other products.
• One of the question marks of Coca-Cola is Fanta, an orange-flavored soft drink that has a low relative market share but a high growth rate. It is popular in some regions, such as Europe and Africa, but faces stiff competition from other brands, such as Tango and Mirinda. Fanta needs more investment to increase its market share and become a star product.
• One of the dogs of Coca-Cola is Tab, a diet cola that has a low relative market share and a low growth rate. It was launched in 1963 as the first diet soda, but lost its popularity after the introduction of Diet Coke. Tab has a niche market of loyal fans, but does not generate much revenue or profit. Tab does not need much investment, but may be phased out or sold off.

Example 2: Apple

Apple is a global technology company that designs, develops, and sells consumer electronics, software, and online services. It is known for its innovative and high-quality products, such as the iPhone, iPad, Mac, Apple Watch, AirPods, Apple TV, and more.

Source: https://www.edrawmax.com/article/apple-bcg-matrix-analysis.html

• One of the star products of Apple is the iPhone, a smartphone that has a high growth rate and a high relative market share. It is the most popular product of Apple that accounts for more than half of its revenue and profit. The iPhone is widely praised for its design, performance, camera, and ecosystem. The iPhone requires continuous investment to maintain its leadership and innovation.
• Another star product of Apple is the iPad, a tablet computer that has a high growth rate and a high relative market share. It is the dominant product in the tablet market that offers a versatile and powerful device for work, education, entertainment, and creativity. The iPad also requires continuous investment to improve its features and functionality.
• One of the cash cows of Apple is the Mac, a personal computer that has a low growth rate but a high relative market share. It is one of the oldest products of Apple that has a loyal and premium customer base. The Mac is known for its quality, reliability, and user-friendliness. The Mac does not need much investment to maintain its market share and can be used to fund other products.
• One of the question marks of Apple is the Apple TV, a streaming device and service that has a low relative market share but a high growth rate. It is one of the newest products of Apple that offers original and exclusive movies and shows, as well as access to other streaming platforms. Representing a growth opportunity for Apple, the Apple TV needs more investment to increase its market share and become a star product.
• One of the dogs of Apple is the iPod, a portable media player that has a low relative market share and a low growth rate. It was once the most popular product of Apple that revolutionized the music industry, but lost its relevance after the emergence of smartphones. The iPod has a small market of nostalgic fans, but does not generate much revenue or profit. The iPod does not need much investment, but may be discontinued or replaced by other products.

These are some examples of how the BCG matrix can be used to analyze different brands and their products or services. The BCG matrix can help managers to evaluate their current portfolio and make strategic decisions about where to invest, where to divest, where to maintain, and where to develop new products or services.